An Australian-first biofuel demonstration facility in the New South Wales Hunter Valley has been touted as a game-changer in the food versus fuel debate that has overshadowed the production of ethanol for some time.

The Federal Government through the Australian Renewable Energy Agency (ARENA) has announced $11.9 million in funding for Australian biofuel company Ethanol Technologies Limited (Ethtec) to assist in the development of its ground-breaking process.

The facility produces ethanol from a range of waste plant matter left over from crop harvesting and forestry.

As part of a $48 million dollar project, Ethtec plans to construct a $30 million purpose-built pilot facility in the Hunter Valley town of Muswellbrook, expected to produce 270,000 litres of biofuel per annum with the aim of making the technology available to the commercial market in five years' time.

Reduced emissions for transport sector

The four phase project is seeking to make advanced biofuels a viable option to support the reduction of greenhouse gas emissions in the transport industry, with the potential to unlock future export avenues.

ARENA's Matt Walden said the initiative came at a time when demand for ethanol was dramatically increasing.

"From a whole of market perspective, the transport sector contributes up to about 16 per cent of Australia's total emissions," he said.

"In 2015, the global market for biofuels or ethanol was in the region of about 97 billion litres, the majority of that produced from first generation sources such as corn and sugar.

"Australian capacity is around about 100,000 litres per annum, which is again mainly sourced from first generation sources, but by 2050 the International Energy Agency estimates that demand will increase to in excess of 900 billion litres.

"So technology like this has the opportunity to be a key player in that market."

New income stream for farmers

The process is tipped to revolutionise agribusiness, enabling farmers to sell the valuable food portion of their crops while creating a secondary market for the leftover waste stream.

Ethtec's chief scientist and managing director Dr Russell Reeves said the new method solved several problems.

"Ethanol production, what we refer to as first generation, is based on using starch from wheat or corn crops or sugar juice from sugarcane crops," he said.

"There are a number of issues with that — it is environmentally unsustainable, it is economically unviable but, perhaps most importantly, it competes with food production.

"The basis of a legitimate ethanol fuel industry — one that can produce ethanol in the volumes that are significant in the context of meeting fuel demand and at a price that's competitive with products derived from crude oil without subsidy — has to be based on what's termed lignocellulosic or woody fibrous materials."

Ethtec senior research biotechnologist, Dr Geoff Doherty said as well as overcoming barriers to the widespread use of ethanol as fuel, other products could also be created.

"We can liberate the sugars from any sort of plant biomass and once we get those sugars into solution, we can then either ferment them to ethanol or we can also take them to other higher value green chemicals such as renewable plastic precursors, industrial lubricants and even potentially pharmaceuticals," he said.

"Our technology will still allow farmers to sell their crops into the existing food market and then also sell that fibre into an industry that we create, which is biofuels and green chemicals.

"We believe that within five years we will have all of the engineering data from our research at Muswellbrook to be able to build a commercial-scale plant — we can see a biofuels industry, based on our technology, within the decade."

Jobs for local community

Muswellbrook mayor Martin Rush said the pilot facility, which is to be located on council-owned land, would be pivotal for the region.

"A $48 million investment, 20 research jobs along with it, but all of that pales in comparison to the opportunity both on the input side and the supply side in terms of the longer term benefits to the Upper Hunter," he said.

"On the product side it's creating diesel — the Upper Hunter is one of the largest users of diesel in NSW as a result of the coal industry.

"So this is just a win-win research project which is putting this plant in the heart of a community that can benefit from the diversification of its intensive agriculture and help build resilience in its economy, but also feed into the local thermal coal industry in lowering the cost, including the carbon cost, of one of its major inputs.

"A bio-refinery in the Upper Hunter would employ many hundreds of people if it proceeded to commercial scale."

Ethtec has invested more than $18.6 million in the project to date, with the ARENA funding of $11.9 million matched by industry partner, Jiangsu Jintonggling Fluid Machinery Technology Company Limited, as well as partnering with Apace Research Limited, the University of Newcastle, and Muswellbrook Shire Council.